How to Invest Money Wisely In Fixed Deposits

FDs are a risky proposition, and more so in the case of private financial companies. The Deposit Insurance and Credit Guarantee Corporation (DICGC) has got your back though, by providing insurance on deposits of ₹1 lakh. But this scheme is applicable only on FD from banks. So, next time when you start a fixed deposit account, try to use FD Calculator and then check the priority of the banks and split the accounts over different banks for ₹1 lakh deposits.

Premature withdrawals can cause lowering of interest rates on your FD. Splitting your FD across different branches and banks also allows you to break an account for emergency needs, by paying a nominal penalty on the overall amount.

You remember snakes and ladders, right? The uncertainties and volatility (snakes) of FDs can be controlled by having a ‘ladder plan’ – let’s say you have ₹4 lakhs and you deposit it in 4 different FD accounts of increasing tenures from 1 year to 4 years. On maturity of each scheme, you invest it in the longest plan. This ensures easy liquidity and offsets volatile interest rates from different banks. The snakes will never bother you again!

TDS (Tax Deduction At Source) is applicable on interests above ₹10,000 paid out on fixed deposits. You can split accounts so that your interests don’t exceed this value, or fill out form 15G stating that your income from interests do not exceed ₹10,000 in any single account. Please be sure to pay relevant taxes if you are an Indian Citizen with Indian bank accounts (not Swiss ones!).

Create FD accounts on the names of any minor children that you have. Such accounts attract tax exemption of ₹1,500 per child per year, for a maximum of 2 children. Who knew having kids could actually be useful financially!

When you feel rates are going to come down in future (like now), it is better to invest in longer tenure FDs where you will be eligible for higher returns. Vice versa is also true.

Some banks provide FDs where you can withdraw amounts in multiples of ₹1,000, thereby opening another venue for liquidity when you desperately need it.

Opt for auto-renewal facility at maturity if you are bad with bookkeeping like most of the population.

If you have a parent above 65 years of age, then invest in the FD in their name. This will give you an extra interest of 0.50% on all deposits. Also, your parents will appreciate funds going INTO their accounts after years of funds flow in the opposite direction.

You can also opt for Systematic Investment Plan (SIP) from various mutual funds. These plans are the recurring deposits of mutual funds. By depositing the interests earned from your fixed deposit directly into such an account, you stand to receive another 15%-20% interest per annum on free money!

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